Outsourcing Benefits or just more “Widgets”

As with almost every aspect of the insurance industry, independent adjusters have been subject to cyclical changes in both their usage and perception. Subject to such market forces, independent adjusters have generally moved in a professional and positive manner to better serve their clients’ needs.

And, as with insurers themselves, the last decade has through consolidation resulted in the emergence of national and multi-national adjusting firms, each vying for marketshare through what they believe to be strategic “service enhancements” — that secret recipe that each hopes will vault them into the market lead. Similarly, smaller independent operators have through strategic alliances struck out to achieve being “nationally associated”, while at the same time promoting their “hometown” advantages.

While the above trends are typical of market force adaptations to survive, and one could argue that the result is even producing a healthier and more effective marketplace, these movements also clearly highlight the extremely intense competition that continues to dictate the independent adjusting sector.

Outsourcing drive

In this respect, an emerging factor that could hold significant sway on the future quality and professionalism of the independent adjusting sector, as well as relations between insurers and their adjusting partners, lies in the “outsourcing debate”. Outsourcing claims adjusting services has always been very much at the center of the industry’s cost cutting strategizing. This remains the case with the current industry round to reduce operating expenses, with the “to outsource or not” question once again hung out in the open. And, although there are many pros and cons to this argument, it is not my intent to review them here. I will note that the “pick me! pick me!” mentality that has been inspired by this latest cost-cutting outsourcing drive, combined with the already intense competition within the marketplace, could in the long run produce significantly detrimental results for both insurers and independent adjusters alike.

There is an old story about the manufacturer who, losing half a cent on every widget he produces, decides to increase production to increase revenue. In like manner, some large and small independent adjusting firms are now facing a “bidding war” under the outsourcing hammer as they undertake to handle larger volumes of claims at reduced “per file” fees. At first glance, this appears to be a “win-win” situation. I suggest, however, that independents following this course will simply find themselves eventually running a loss-leader, producing in effect more “widgets” and no profits.

Tomorrow’s costs

While insurers may enjoy a temporary loss expense respite under such circumstances, some will find that false economies do not pay off. And, getting no more or no less than they paid for, will discover that tomorrow often reveals a higher loss cost. As a claims professional, it is my belief that insurers should pay a “fair dollar for a fair claim” — no more, no less. Is it reasonable then to expect stellar service for less than a reasonable price? While I cannot exactly define what a “reasonable price” is, I do know that it cannot be a “cost”, or fee, driven solely by the price the market will bear.

I also believe that independent adjusters, whatever their specialization and structure, are an invaluable resource to the insurance industry. While I am not naive enough to suggest that independent adjusters should cease “selling their services” in a fee-competitive sense, I do sincerely hope that any such agreements will not lead to a compromise of standards — nor that insurers will expect adjusting firms to do so.